Effect Of Firm Specific Factors On Stock Returns Of Insurance Firms Listed At The Nairobi Securities Exchange

Abstract

Maximization of shareholder’s wealth is the main goal of a firm and therefore it has been and will continue to be at the centre of discussions in finance. Because of the importance attached to generating returns to shareholders, great attempts have been made to understand it over time in terms of factors that contributes to its realization or none realization. The aim of this study was to ascertain the effect of firm specific factors on stock returns of insurance firms quoted at the NSE. The population for the study was all the 6 insurance companies quoted at the NSE. The independent variables for the study were underwriting risk, solvency margin, liquidity, firm size, management efficiency and age of the firm. Stock return was the dependent variable and was represented by change in share price plus any dividend issued during the period. Secondary data was collected over a ten-year time frame (January 2009 to December 2018) annually. Research design for this study was descriptive cross-sectional design while multiple linear regression was applied in determining the relationship between the variables. SPSS software was employed in the analysis of data. From the analysis an R-square value of 0.533 was produced which in other words mean that 53.3% of the changes in the stock returns of listed firms at the NSE can be described by the predictor variables studied while the other 46.7% in the changes in stock returns is affiliated to other variables that outside the scope of this study. It was further found out that independent variables of this study strongly correlated with the stock returns (R=0.730). ANOVA outcomes revealed that the F statistic was significant at 5% level with a p=0.000. Henceforth, the model was appropriate in explaining the association between the selected variables. The findings also showed that firm size and management efficiency produced positive and statistically significant values for this study while underwriting risk produced negative and statistically significant values for this study. Solvency margin, liquidity and firm age were statistically insignificant determiners of stock returns. This study recommends that listed insurance firms should enhance their asset base and management efficiency and reduce underwriting risk as this will significantly improve their stock returns.